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Delaware Plays Lead Role in $1.375 Billion National Settlement with Standard & Poor’s

Date Posted: Tuesday, February 3rd, 2015
Categories:  Consumer Protection Department of Justice DOJ Press Releases

Delawareans to Benefit From $25 Million Payment to State 

 

WILMINGTON, DE – Attorney General Matt Denn announced today that Delaware, the U.S.  Department of Justice and a coalition of 18 states and the District of Columbia have reached a settlement agreement with McGraw Hill Financial, Inc. and Standard & Poor’s Financial Services LLC (collectively S&P) resolving allegations that S&P misled market participants when it rated structured finance securities in the lead-up to the 2008 financial crisis and beyond.

 

As the result of an investigation conducted and litigation filed by the Attorney General’s Consumer Protection Unit, Delaware will receive $25 million as part of a settlement which requires S&P to pay a total of $1.375 billion to the states and the U.S. Department of Justice.  The U.S. Department of Justice will receive $687.5 million and the 19 states and the District of Columbia collectively will receive $687.5 million.

 

“This settlement is another important step in the process of holding accountable those institutions whose misconduct contributed to the devastating financial crisis of 2008,” said Attorney General Matt Denn. “This comes as the result of two years of litigation in which Delaware and its state and federal partners successfully fought together to hold S&P responsible for its misrepresentations to market participants.”

 

Delaware filed its lawsuit in early 2013, along with the U.S. Department of Justice, the District of Columbia and 11 additional states.  The states of Connecticut, Mississippi, and Illinois had previously sued S&P, and several states filed lawsuits later in 2013.

 

The federal and state complaints against S&P allege that, despite S&P’s repeated statements emphasizing the independence and objectivity of its ratings services, the credit rating agency allowed the independence and objectivity of its ratings to be compromised by its desire to earn lucrative fees from its investment bank clients.  Investors and other market participants, including state regulators, relied on S&P’s promises of independence and objectivity when evaluating the credit risk of structured finance securities. The alleged misconduct began as early as 2001, became particularly acute between 2004 and 2007, and continued into at least 2011.

 

In addition to the $1.375 billion payment, S&P has agreed to a statement of facts acknowledging conduct related to the professed independence and objectivity of its analysis of structured finance securities.  S&P has also agreed to comply with all applicable state laws, including the Delaware Consumer Fraud and Deceptive Trade Practices Acts, and for five years will cooperate with any request for information from any settling state expressing concern over a possible violation of state law. The states and federal government have agreed to file stipulated judgments, consent judgments or similar pleadings in their lawsuits in order to implement the terms of the settlement agreement and resolve their respective court proceedings.

 

In August 2014, the United States Securities and Exchange Commission adopted new requirements for credit rating agencies that address conflicts of interest and procedures to protect the integrity and transparency of rating methodologies and that provide for certifications to accompany credit ratings attesting that the ratings were not influenced by other business activities.

 

Delaware played a lead role in the multistate group involved in today’s settlement, which includes the states of Arizona, Arkansas, California, Colorado, Connecticut, Idaho, Illinois, Indiana, Iowa, Maine, Mississippi, Missouri, New Jersey, North Carolina, Pennsylvania, South Carolina, Tennessee, and Washington, as well as the District of Columbia.

 

“Working together, we were able to hold S&P accountable for its actions,” Denn said.  “I thank the Attorneys General from the settling states and also thank Greg Strong, the head of Delaware’s Consumer Protection Unit and his team, who invested two years of hard work on this case.”

 

The S&P matter was handled for Delaware by Gregory Strong, Jill Lazar, David Weinstein and Joelle Polesky, Deputy Attorneys General in the Consumer Protection Unit, and Matthew Lintner, Director of the Fraud Division.

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